An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Sunday, July 19, 2020
Lars P. Syll — Does MMT — really — ignore expectations?
Quote from Macroeconomics by Mitchell, Wray and Watts showing that takes expectations into account.
The Job Guarantee maintains an army of reserve labour that can be deployed against private sector entities using low end unskilled labour that raises prices.
Firms know that and therefore refrain from raising prices - pushing quantity expansion instead.
Expectations is baked into the very basis of the countercyclical stabiliser in every MMT book. Half the argument for doing jobs rather than income comes from the threat mechanism - almost all of which is expectations based.
Cognitive Dissonance amongst the mainstream can be the only answer.
Re NeilW's comment, first, as to “JG maintains an army of reserve labour..”, so does unemployment. Ergo JG achieves nothing there that unemployment doesn’t also achieve.
Second, I’m baffled as to why “low end unskilled labour” would “raise prices”. What WOULD raise prices would be using UNSUITABLE labour: e.g. using skilled and well paid labour where unskilled labour can do the job concerned. But that's not what's involved here.
Third I was pleased to see Simon Wren-Lewis on twitter the other day attacking the idea that JG counters inflation in any significant way. That’s what I’ve been saying for years.
Fourth, I’m not TOTALLY opposed to JG. But what I do think is that 95% of those who advocate JG haven’t the faintest idea what they’re talking about.
I set out my own ideas on JG here, though I suspect my stuff will be too difficult for most JG enthusiasts:
That's like comparing a standing army to raising an army. Do you want to fight a war with farmers with pitchforks and no training?
The threat is that the business will be replaced entirely with a public or social entity that will have access to the subsidised labour. And that's because the "unfair competion" defence would no longer hold - since price rises show there is insufficient competion.
"I’m baffled"
Job Guarantee pulls people away from crap firm working people stupid hours and silly shifts at a low wage. Firm attempts to hire back by raising wages and prices. Job Guarantee labour can then be deployed by social enterprises in competition with that firm - eliminating them. And it will work because it's an unskilled labour battle with a low capital base.
Private firm know this, and therefore won't engage in that behaviour - because the threat is credible.
Similarly at the other end of the cycle the "what about the jobs" sirens can be ignored and over extended firms (*and* banks - since we no ) can be left to die. Another reason why you don't want the private sector involved in anything other than market based job provision. Private firms should be die quickly and die often to ensure bad allocations are purged as fast as possible - particularly at the peak of the cycle.
Wren-Lewis likes wonks in ivory towers and thinks things can be controlled by interest rates. He's wrong on that too.
" I suspect my stuff will be too difficult "
Nothing difficult about it. But like mainstream economics it is systemically and dynamically naive about the way private sector firms operate. I put that down to lack of real world experience.
The Job Guarantee maintains an army of reserve labour that can be deployed against private sector entities using low end unskilled labour that raises prices.
ReplyDeleteFirms know that and therefore refrain from raising prices - pushing quantity expansion instead.
Expectations is baked into the very basis of the countercyclical stabiliser in every MMT book. Half the argument for doing jobs rather than income comes from the threat mechanism - almost all of which is expectations based.
Cognitive Dissonance amongst the mainstream can be the only answer.
Re NeilW's comment, first, as to “JG maintains an army of reserve labour..”, so does unemployment. Ergo JG achieves nothing there that unemployment doesn’t also achieve.
ReplyDeleteSecond, I’m baffled as to why “low end unskilled labour” would “raise prices”. What WOULD raise prices would be using UNSUITABLE labour: e.g. using skilled and well paid labour where unskilled labour can do the job concerned. But that's not what's involved here.
Third I was pleased to see Simon Wren-Lewis on twitter the other day attacking the idea that JG counters inflation in any significant way. That’s what I’ve been saying for years.
Fourth, I’m not TOTALLY opposed to JG. But what I do think is that 95% of those who advocate JG haven’t the faintest idea what they’re talking about.
I set out my own ideas on JG here, though I suspect my stuff will be too difficult for most JG enthusiasts:
http://www.kspjournals.org/index.php/JEPE/article/view/1237
"so does unemployment"
ReplyDeleteThat's like comparing a standing army to raising an army. Do you want to fight a war with farmers with pitchforks and no training?
The threat is that the business will be replaced entirely with a public or social entity that will have access to the subsidised labour. And that's because the "unfair competion" defence would no longer hold - since price rises show there is insufficient competion.
"I’m baffled"
Job Guarantee pulls people away from crap firm working people stupid hours and silly shifts at a low wage. Firm attempts to hire back by raising wages and prices. Job Guarantee labour can then be deployed by social enterprises in competition with that firm - eliminating them. And it will work because it's an unskilled labour battle with a low capital base.
Private firm know this, and therefore won't engage in that behaviour - because the threat is credible.
Similarly at the other end of the cycle the "what about the jobs" sirens can be ignored and over extended firms (*and* banks - since we no ) can be left to die. Another reason why you don't want the private sector involved in anything other than market based job provision. Private firms should be die quickly and die often to ensure bad allocations are purged as fast as possible - particularly at the peak of the cycle.
Wren-Lewis likes wonks in ivory towers and thinks things can be controlled by interest rates. He's wrong on that too.
" I suspect my stuff will be too difficult "
Nothing difficult about it. But like mainstream economics it is systemically and dynamically naive about the way private sector firms operate. I put that down to lack of real world experience.